Business owners of growing companies are very busy people. One of the obstacles they must continually fight is being distracted from the really important drivers of their business. It is easy to get so caught up in details that drain time and energy. The business suffers for a lack of focus on what is important to move the company forward toward achieving its goals. As a result, profits remain low, cash is drained, and the value of the business does not grow. One way to keep the intensity on the key areas is to have a type of analysis that company leaders analyze every month that includes the following.
- Profitability Analysis– This analysis must show the owner in a simple format key margins and major expense drivers. It should have comparisons with the plan and the prior year. In addition, a projection for the remainder of the year must be a key component based on current results and known assumptions. Armed with this knowledge, decisions that increase profitablity can be made quickly to impact results.
- Cash Forecast– A simple cash forecast reveals to the owner the most likely cash balance projections going forward up to twelve months out. Preparation can be made for anticipated cash shortages and key decisions determined for forecasted surpluses.
- Asset Efficiency– Business owners have invested heavily and will need to invest in the future for the company to achieve its goals. Vital measurements in this area must show the type of return the owners are getting for their investment. Is it adequate? Could they be getting a better return investing somewhere else?
Analyzing profitability, cash, and asset efficiency every month will assist in minimizing distractions and enable company leaders to remain focused on the essentials, leading to a much healthier business.